LTCG From Share Sale cannot Be Treated as Unexplained Income u/s 68: ITAT [Read Order]
Reiterating evidentiary standards, ITAT ruled that LTCG from share sale cannot be assessed under Section 68.
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that long term capital gains arising from the sale of shares cannot be taxed as unexplained income under Section 68 of the Income Tax Act just on suspicion and general investigation reports. The Mumbai Tribunal deleted an addition of Rs.3.98 crores and held that the assessee proved the genuineness of the transactions through documentary evidence.
The assessee, Jay Hansraj Chheda, claimed long-term capital gains on the sale of shares of Pine Animation Limited, for which exemption was claimed under Section 10(38) of the Act. The shares were acquired through a preferential method and were disposed of after a holding period of more than one year through stock exchange mechanisms.
The Assessing Officer, relying on reports of manipulation of penny stock trades, held the gains to be bogus and added the entire LTCG amount of ₹3.98 Crore as unexplained cash credit u/s 68. An additional estimated commission expense was also added under section 69C.The additions were removed by the Commissioner(Appeals), and hence, Revenue filed an appeal before the ITAT.
The Revenue contended that the abnormal rise in share prices indicated a pre-arranged transaction and that the assessee had allegedly benefited from a colourable device to convert unaccounted money into exempt LTCG. It was argued that the scrip was identified as a penny stock in investigation reports and therefore the transaction lacked credibility.
The assessee on the other hand, contends that all dealings have been through recognized stock exchanges and have been fully supported through contract notes, demad statements, bank statements, and proof of payment of STT. It further argues that there is no evidence brought on record to suggest direct involvement in price manipulations or accommodation entries by the assessee.
Dismissing the Revenue’s appeal, the ITAT held that suspicion, conjectures, or general investigation reports are not a substitute for evidence. The Tribunal also observed that the onus cast in Section 68 of the Act was discharged by the assessee by producing all the documentary evidence to establish the genuineness of the transactions.
The Bench comprising Justice Kavitha Rajagopal [Judicial Member] Prabhash Shankar, [Accountant Member] observed that in the instant case, SEBI had not found any adverse role on the part of the assessee in price rigging. The Revenue could not establish a direct link between the assessee and the alleged manipulation. Relying on the precedents, the Tribunal held that genuine share transactions could not be recharacterised as unexplained income simply on the basis of abnormal increase in the price.
Accordingly, the ITAT upheld the deletion of the addition of ₹3.98 crores under Section 68 as well as the deletion of the estimated commission addition under Section 69C.
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